Source: Bloomberg Mexico’s central bank kept its keyinterest rate unchanged at a record low after forecasting that faster economic growth won’t prevent inflation from slowing toward target. Banco de Mexico’s board, led by Governor Agustin Carstens, kept the overnight rate at 3 percent, a move forecast by all 23 economists surveyed by Bloomberg. After cutting rates by 1.5 percentage points in the past 18 months, the central bank reduced its 2014 growth forecast last month, saying indicators of domestic demand such as consumer confidence remain weak. Policy makers will “pay particular attention” to the slack in the economy as demand picks up, according to a statement accompanying today’s decision. The comments had a “little bit more hawkish” tone, said Alonso Cervera, the chief Latin America economist at Credit Suisse Group AG. “This closes the door to any hope that the bank will move rates in the remainder of the year. The topic of debate next year will be when the central bank will hike.” The peso strengthened 0.6 percent to 13.0737 per U.S. dollar at 9:26 a.m. in Mexico City. While growth picked up in the three months through June and will improve in the second half of the year, it won’t be fast enough to pressure consumer prices, the central bank also said in today’s statement. Inflation OutlookThe inflation rate, which climbed to 4.07 percent in July, will drop below 4 percent by year end and near 3 percent in the first half of next year as the nation changes its formula for pricing gasoline and the impact of this year’s tax increases ebbs, the bank said. The central bank’s next move will be to raise rates by at least a quarter point in the third quarter of next year as the U.S. tightens monetary policy, according to the median forecast of economists surveyed by Bloomberg. Gross domestic product expanded 1 percent in the second quarter from the previous three months, more than the 0.8 percent median estimate of analysts in a Bloomberg survey. Increased exports to the U.S., Mexico’s biggest trade partner, and a recovery in the services industry buoyed the economy, deputy Finance Minister Fernando Aportela said Aug. 21. Picking UpThe U.S. economy grew at a 4.2 percent annualized rate from April through June after shrinking 2.1 percent in the first quarter, when harsh winter weather undercut demand. After declining from a year earlier in January, Mexico’s exports have increased at least 4 percent every month. The government forecasts economic growth will continue to accelerate after President Enrique Pena Nieto broke state-owned Petroleos Mexicanos’s production monopoly, allowing companies such as Exxon Mobil Corp. and Chevron Corp. to explore for oil. The government plans to award the first contracts to private drillers in May as part of changes that Pena Nieto said last month could bring an extra $250 billion in foreign investment and help lift annual growth close to 5 percent by 2018. The central bank lowered its 2014 growth forecast for the third time on Aug. 13 to reflect weak first-quarter growth, saying GDP will rise 2 percent to 2.8 percent, down from their previous estimate of 2.3 percent to 3.3 percent. Policy makers maintained their forecast for the economy to grow 3.2 percent to 4.2 percent next year. Early SignsSome indicators of internal demand are beginning to show a rebound, Delia Paredes, an economist at Grupo Financiero Banorte SAB, said in a telephone interview before today’s decision. Same-store retail sales increased 0.7 percent in July, rebounding from a 0.2 percent decline in June, according to Antad, a trade group that represents retailers including Organizacion Soriana SAB, the nation’s second-largest supermarket operator, and El Puerto de Liverpool SAB. The construction industry has also shown improvement, expanding in June for the first time in 19 months.Empresas ICA SAB (ICA* ▼ -1.42% 24.35), Mexico’s largest construction company, saw sales rise 16 percent to 9.06 billion pesos ($689 million) in the second quarter, beating analyst estimates. “The central bank has at this point room to hold interest rates steady for a while,” Ociel Hernandez, a strategist at Grupo Financiero BBVA Bancomer SA in Mexico City, said in a telephone interview before today’s decision. “The recovery has been slow and there is some uncertainty as to whether it will last in the final two quarters of the year.”
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December 2014
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